Legal Dimensions of Corporate Social Responsibility in India
Legal Dimensions of Corporate Social Responsibility (CSR) in India
1. INTRODUCTION
Corporate Social Responsibility (CSR) refers to the responsibility of corporations to contribute positively to society while conducting business ethically. In India, CSR has evolved from a voluntary, moral obligation to a legal mandate under the Companies Act, 2013.
2. CSR AS A LEGAL MANDATE IN INDIA
A. Section 135 of the Companies Act, 2013
This is the cornerstone legal provision making CSR mandatory for certain companies.
Applicability:
Companies meeting any of the following thresholds during any financial year must comply with CSR provisions:
Net worth of ₹500 crore or more, or
Turnover of ₹1000 crore or more, or
Net profit of ₹5 crore or more.
CSR Committee:
Such companies must form a CSR Committee of the Board, consisting of three or more directors, including at least one independent director.
CSR Policy:
The Committee formulates and recommends a CSR Policy outlining the projects or programs to be undertaken.
Expenditure:
The company is required to spend at least 2% of the average net profits of the last three financial years on CSR activities.
Reporting:
The Board must disclose CSR activities and expenditures in the Annual Report and on the company’s website.
Failure to Comply:
Non-compliance may attract penalties on the company and its officers, including fines and imprisonment.
3. CSR ACTIVITIES UNDER THE COMPANIES ACT
The Schedule VII of the Companies Act lists activities that qualify as CSR, such as:
Eradicating hunger, poverty, and malnutrition
Promoting education
Gender equality and women empowerment
Environmental sustainability
Protection of national heritage, art and culture
Rural development projects
Training to promote employment
Contribution to government funds for socio-economic development
Disaster relief efforts
4. LEGAL ENFORCEMENT AND GUIDELINES
A. Role of Ministry of Corporate Affairs (MCA)
MCA issues guidelines to assist companies in CSR compliance.
It monitors and takes action against non-compliant companies.
B. Companies (Corporate Social Responsibility Policy) Rules, 2014
Prescribes detailed rules on CSR policy formulation, reporting, monitoring, and disclosures.
C. Penalties for Non-Compliance
Failure to constitute a CSR Committee: Fine up to ₹1 lakh, continuing default ₹5,000 per day.
Failure to spend CSR amount: Company and officers liable to a fine up to ₹50,000.
5. JUDICIAL INTERPRETATION AND CASE LAW
A. Tata Steel Ltd. v. State of Jharkhand (2014)
Tata Steel, a major corporate, emphasized CSR as integral to sustainable business.
The court recognized CSR as a legal and moral obligation.
This case highlighted the evolving jurisprudence on CSR being more than charity—it’s a responsibility tied to business sustainability.
B. Centre for Environmental Law, WWF-India v. Union of India (2013)
The court emphasized the role of CSR in environmental protection and held that companies must undertake environmental conservation as part of CSR.
C. Vodafone India Services Pvt. Ltd. v. Union of India (2018)
The court observed that CSR spending is mandatory under the Companies Act and that companies should adhere to their CSR policies.
D. Karnataka Industrial Areas Development Board v. Sri C. Kenchappa (2010)
Though not directly about CSR, this case recognized the government's role in ensuring corporate accountability for social welfare, influencing CSR frameworks.
6. CSR AND OTHER LAWS
Income Tax Act, 1961:
Donations for CSR activities may be eligible for tax deductions if made to specified funds or charitable organizations.
SEBI Regulations:
For listed companies, SEBI mandates disclosure of CSR activities and expenditures in Annual Reports and quarterly filings.
7. CHALLENGES AND CONTROVERSIES
Mandated spending vs. voluntary spirit: Some argue that mandatory CSR spending dilutes the voluntary, philanthropic nature of CSR.
Quality of CSR initiatives: Concerns over funds being used for compliance rather than impactful projects.
Minority shareholders: Limited direct impact, but CSR contributes to the overall reputation and sustainability of companies.
Judicial scrutiny: Courts emphasize genuine CSR efforts, not just token spending.
8. CONCLUSION
The legal framework under the Companies Act, 2013, backed by judicial pronouncements, firmly establishes CSR as a mandatory corporate responsibility in India for specified companies. This legal mandate promotes not just compliance but also encourages companies to adopt sustainable and socially responsible business practices.
CSR in India is now a blend of law, ethics, and social welfare, reflecting the country’s commitment to inclusive growth and sustainable development.
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